The The World Health Organization has released a major study of Medical Savings Accounts around the world. It looks at programs in the U.S., South Africa, mainland China, and particularly at Singapore. The report is more balanced than one might expect coming from WHO, but it can’t avoid the dismissive tone we often hear from statists. Still, there is some useful information here.

The bulk of the report is on Singapore, which has had a mandatory MSA program since 1984. The report characterizes the evidence from Singapore as ?unclear,? but by any measure Singapore must be considered a raving success story. Its growth in health care spending has tracked almost perfectly its growth in GDP since the program was introduced. Today Singapore spends less than four percent of GDP on health care and the balance held in the MSA funds equals four times the annual spending on health care nationally. WHO quibbles with some of these results, pointing out for instance that, ?12 percent of daily outpatient users also visit traditional Chinese medicine practitioners,? which are not counted ?in Singapore’s health accounts.? The report does not attempt to estimate how much money goes into these types of services, but if a mere 12% are supplementing their regular treatment with other services, it could not be a major factor. And this factoid does not undermine the remarkable 20-year restraint in cost increases for those services that are included.

The more important point that should be made about Singapore is that the majority of health spending in that country is paid out-of-pocket, even without considering the MSAs. In 1999, out of total health care spending of $160 billion (in Singapore dollars), $60 billion was paid by government, about $10 billion by MSAs, and $90 billion directly out-of-pocket. The real source of Singapore’s cost consciousness isn’t the MSA, but the out-of-pocket portion of health care spending. MSAs’ primary purpose is moving a system that relies on third-party payment (like the U.S., where 85% of all health care spending is paid by third parties) toward a system that relies more on direct payment, and the cost consciousness that goes with it.

The other interesting discussion in the paper is on China, which started an MSA pilot program in two cities in 1994. At the same time it also revised provider payments to prospective fee-setting. The MSA was accompanied by a ?Social Insurance Account,? essentially a high-deductible health insurance plan with a substantial co-payment. The results were impressive, including a 27% decrease in per capita spending and a 24.6% decrease in total health care spending in one of the cities. The WHO paper questions how much of the decreased spending could be attributed to the MSA versus the change in provider payment. But China decided in 1998 to extend the program to all urban workers with a goal of enrolling 80 million workers by the end of 2001. The paper does not tell how well the expanded program has worked.

Finally, the paper takes quick looks at the U.S. and South Africa. It dismisses South Africa as having insufficient evidence, and says the American experiment was ?unsuccessful as there are very limited number [sic] of people interested in joining.? Overall, it concludes there isn’t enough information to assess whether MSAs are a good idea or not.

The Portland Oregonian ran a major article on consumer-driven health care on February 2, 2003. Written by Joe Rojas-Burke, the article isn’t all favorable. It says consumer-driven plans have enrolled about 1.5 million people, including a local woman who is diabetic and has other chronic health problems, but who ?wants the choice; then I can make my own decisions.? But she also worries about the potential cost burden for people with serious health problems. The article says, ?the fairness issue arises in all plans that reward consumers for not spending health care dollars.? But it cites Dan Perrin of the Archer MSA coalition as saying that by lowering the cost of insurance, MSAs could ?dramatically increase coverage to the uninsured.? He points out a Treasury report that 73 percent of the people who bought an MSA last year were previously uninsured. The article adds that HRAs and MSAs, ?may also help workers cope with increasing out-of-pocket costs as employers raise deductibles and drop services from coverage.? On the other hand, Victoria Bunce of the Council for Affordable Health Insurance says with HRAs, ?the only way the employee is going to get that money is to spend it.? She thinks HRAs will not encourage thrift.

Anne Robinow of Patient Choice says, ?If employers are not careful about plan design, they could easily end up spending more money.? At the same time, she says people have been sheltered from the true cost of the services they consume, ?We have given consumers too much of a free lunch.? But she adds that it is the providers, not consumers, who can ?re-engineer health care delivery.?

MyHealthBank’s Donald Sacco, however, argues that consumerism will radically transform health care. Consumers ?will become the force that pushes medical providers to tranform quality.? But Sacco acknowledges that, ?a lot of people, including many politicians, are still reluctant to accept the fact that a consumer can be an effective purchaser on their own behalf.?

The Ethan Allen Institute has released a report on ?A Health Care Reform Agenda for Vermont.? The recommended reforms could apply as well to any other state in the country, and it includes suggestions for federal reforms as well. This concise document was prepared by eleven nationally known free-market health care experts, under the auspices of the State Policy Network. It begins by making a clear distinction between a ?Service Delivery Paradigm,? in which patients are ?passive vessels into which competent professionals deliver the elixir of health care,? and a ?Patient Power Paradigm,? in which individuals are ?considered competent to recognize the essentials of healthy lifestyle choices and effective self-treatment for non-acute conditions.? The report goes on to suggest seventeen specific actions states could make to move towards the Patient Power Paradigm and ten actions for the federal government. The list is not intended to be exhaustive, and the report hints at a number of second tier actions that would be worth considering in the future.

The Rio Grande Foundation of New Mexico has issued a report on reforming that state’s Medicaid program. The paper was written by Kenneth Brown and Harold Messenheimer, both PhD economists. It discusses the recent history of Medicaid in New Mexico, including soaring costs and enrollments and a legislature that routinely chooses the most expensive option available when thinking about what to do next with Medicaid. The report then questions several of the central premises of Medicaid:

? That it is appropriate for the state to ?give? poor people medical services, rather than giving them the means to purchase an insurance program similar to what other people have. As it is, because Medicaid covers virtually everything for free, there is no reason for recipients to think twice about consuming a service.

? That New Mexico benefits from expanding Medicaid because the federal government pays 75% of program costs. In fact, New Mexicans are taxed by the federal government to raise that 75% match, so there is little net gain for the state.

The report walks through the dilemmas facing New Mexico’s (and every other state’s) Medicaid program – increases in population, eligibility, utilization, underlying health care costs – and predicts annual cost increases ranging from five to ten percent for the next decade. To the extent the program grows faster than state revenues, the state will have to cut back on other services. One answer is easy – simply cut back on benefits, eligibility, or rates of payment, but, ?this straightforward approach is, in our view, inadequate and inadvisable. Far better to take a longer term look and design something that will still be workable and affordable five or ten years from now.?

It would be far better, say the authors, to move to a system of defined contributions which provide cash assistance in the form of a voucher to the needy on a sliding scale basis, providing a family of four with no income with an annual voucher worth $6,600 and reducing by $300 for every $2,000 in income earned. Thus a family of four with $20,000 of income would qualify for $3,600 in assistance, one with $30,000 would get $2,100. These families would then be free to choose their own insurance plan in keeping with their own needs and values. The coverage could include a medical savings account program with the understanding that unused balances would be available for other purposes only five years after losing eligibility for the program.

Proweh Health Systems of Birmingham, Alabama, announces savings of 28 percent for a client that adopted its MSAPlus product last year. The report is based on comparing the six month period of May to October, 2002 with the same period in 2001. Company president Gerald Chandler said the consumer-directed health care concept, ?is so new there are few firms with year to year results? and that measurement is difficult in those companies with multiple options. But this was a total replacement client, so comparison is easy. The results exceeded the expectations of the Mercer Human Resources Consulting Group, which issued an opinion last year that expected savings in the 10 to 25 percent range. Specifically, there were reductions of 58% in emergency room cost-per-visit, 25% in diagnostic X-ray and lab costs per encounter, and a shift of 11.3% from name brand to generic drugs. At the same time, there was an increase of 9.6% in physician office visits and 31.2% in the total number of prescriptions written.

Synertech reports it is servicing over 100,000 members of consumer-directed health plans with its claims processing, enrollment, database management, coordination of benefits and other tools. It anticipates substantial growth in the business in the coming year, with total consumer-driven enrollment expected to reach 400,000 to 500,000 in 2003. Company president Steve Rock says, ?We have helped the leaders in the move to consumer-directed programs make their concepts a reality.? The company was founded in 1986 and provides outsourcing, application services and system maintenance in the commercial, Medicaid and Medicare markets.

Asperity Decision Solutions has changed its name from PlanSmartChoice, under which is has worked since 1995. It provides Web-based tools to large employers, including the FEHBP program. The tools include help to employees in finding the ?best-fit? health plan, a benefits comparison module, and a calculation module to help employees estimate their out-of-pocket costs under various plans and benefit designs.

The The World Health Organization has released a major study of Medical Savings Accounts around the world. It looks at programs in the U.S., South Africa, mainland China, and particularly at Singapore. The report is more balanced than one might expect coming from WHO, but it can’t avoid the dismissive tone we often hear from statists. Still, there is some useful information here.

The bulk of the report is on Singapore, which has had a mandatory MSA program since 1984. The report characterizes the evidence from Singapore as ?unclear,? but by any measure Singapore must be considered a raving success story. Its growth in health care spending has tracked almost perfectly its growth in GDP since the program was introduced. Today Singapore spends less than four percent of GDP on health care and the balance held in the MSA funds equals four times the annual spending on health care nationally. WHO quibbles with some of these results, pointing out for instance that, ?12 percent of daily outpatient users also visit traditional Chinese medicine practitioners,? which are not counted ?in Singapore’s health accounts.? The report does not attempt to estimate how much money goes into these types of services, but if a mere 12% are supplementing their regular treatment with other services, it could not be a major factor. And this factoid does not undermine the remarkable 20-year restraint in cost increases for those services that are included.

The more important point that should be made about Singapore is that the majority of health spending in that country is paid out-of-pocket, even without considering the MSAs. In 1999, out of total health care spending of $160 billion (in Singapore dollars), $60 billion was paid by government, about $10 billion by MSAs, and $90 billion directly out-of-pocket. The real source of Singapore’s cost consciousness isn’t the MSA, but the out-of-pocket portion of health care spending. MSAs’ primary purpose is moving a system that relies on third-party payment (like the U.S., where 85% of all health care spending is paid by third parties) toward a system that relies more on direct payment, and the cost consciousness that goes with it.

The other interesting discussion in the paper is on China, which started an MSA pilot program in two cities in 1994. At the same time it also revised provider payments to prospective fee-setting. The MSA was accompanied by a ?Social Insurance Account,? essentially a high-deductible health insurance plan with a substantial co-payment. The results were impressive, including a 27% decrease in per capita spending and a 24.6% decrease in total health care spending in one of the cities. The WHO paper questions how much of the decreased spending could be attributed to the MSA versus the change in provider payment. But China decided in 1998 to extend the program to all urban workers with a goal of enrolling 80 million workers by the end of 2001. The paper does not tell how well the expanded program has worked.

Finally, the paper takes quick looks at the U.S. and South Africa. It dismisses South Africa as having insufficient evidence, and says the American experiment was ?unsuccessful as there are very limited number [sic] of people interested in joining.? Overall, it concludes there isn’t enough information to assess whether MSAs are a good idea or not.

The Portland Oregonian ran a major article on consumer-driven health care on February 2, 2003. Written by Joe Rojas-Burke, the article isn’t all favorable. It says consumer-driven plans have enrolled about 1.5 million people, including a local woman who is diabetic and has other chronic health problems, but who ?wants the choice; then I can make my own decisions.? But she also worries about the potential cost burden for people with serious health problems. The article says, ?the fairness issue arises in all plans that reward consumers for not spending health care dollars.? But it cites Dan Perrin of the Archer MSA coalition as saying that by lowering the cost of insurance, MSAs could ?dramatically increase coverage to the uninsured.? He points out a Treasury report that 73 percent of the people who bought an MSA last year were previously uninsured. The article adds that HRAs and MSAs, ?may also help workers cope with increasing out-of-pocket costs as employers raise deductibles and drop services from coverage.? On the other hand, Victoria Bunce of the Council for Affordable Health Insurance says with HRAs, ?the only way the employee is going to get that money is to spend it.? She thinks HRAs will not encourage thrift.

Anne Robinow of Patient Choice says, ?If employers are not careful about plan design, they could easily end up spending more money.? At the same time, she says people have been sheltered from the true cost of the services they consume, ?We have given consumers too much of a free lunch.? But she adds that it is the providers, not consumers, who can ?re-engineer health care delivery.?

MyHealthBank’s Donald Sacco, however, argues that consumerism will radically transform health care. Consumers ?will become the force that pushes medical providers to tranform quality.? But Sacco acknowledges that, ?a lot of people, including many politicians, are still reluctant to accept the fact that a consumer can be an effective purchaser on their own behalf.?

The Ethan Allen Institute has released a report on ?A Health Care Reform Agenda for Vermont.? The recommended reforms could apply as well to any other state in the country, and it includes suggestions for federal reforms as well. This concise document was prepared by eleven nationally known free-market health care experts, under the auspices of the State Policy Network. It begins by making a clear distinction between a ?Service Delivery Paradigm,? in which patients are ?passive vessels into which competent professionals deliver the elixir of health care,? and a ?Patient Power Paradigm,? in which individuals are ?considered competent to recognize the essentials of healthy lifestyle choices and effective self-treatment for non-acute conditions.? The report goes on to suggest seventeen specific actions states could make to move towards the Patient Power Paradigm and ten actions for the federal government. The list is not intended to be exhaustive, and the report hints at a number of second tier actions that would be worth considering in the future.

The Rio Grande Foundation of New Mexico has issued a report on reforming that state’s Medicaid program. The paper was written by Kenneth Brown and Harold Messenheimer, both PhD economists. It discusses the recent history of Medicaid in New Mexico, including soaring costs and enrollments and a legislature that routinely chooses the most expensive option available when thinking about what to do next with Medicaid. The report then questions several of the central premises of Medicaid:

? That it is appropriate for the state to ?give? poor people medical services, rather than giving them the means to purchase an insurance program similar to what other people have. As it is, because Medicaid covers virtually everything for free, there is no reason for recipients to think twice about consuming a service.

? That New Mexico benefits from expanding Medicaid because the federal government pays 75% of program costs. In fact, New Mexicans are taxed by the federal government to raise that 75% match, so there is little net gain for the state.

The report walks through the dilemmas facing New Mexico’s (and every other state’s) Medicaid program – increases in population, eligibility, utilization, underlying health care costs – and predicts annual cost increases ranging from five to ten percent for the next decade. To the extent the program grows faster than state revenues, the state will have to cut back on other services. One answer is easy – simply cut back on benefits, eligibility, or rates of payment, but, ?this straightforward approach is, in our view, inadequate and inadvisable. Far better to take a longer term look and design something that will still be workable and affordable five or ten years from now.?

It would be far better, say the authors, to move to a system of defined contributions which provide cash assistance in the form of a voucher to the needy on a sliding scale basis, providing a family of four with no income with an annual voucher worth $6,600 and reducing by $300 for every $2,000 in income earned. Thus a family of four with $20,000 of income would qualify for $3,600 in assistance, one with $30,000 would get $2,100. These families would then be free to choose their own insurance plan in keeping with their own needs and values. The coverage could include a medical savings account program with the understanding that unused balances would be available for other purposes only five years after losing eligibility for the program.

Proweh Health Systems of Birmingham, Alabama, announces savings of 28 percent for a client that adopted its MSAPlus product last year. The report is based on comparing the six month period of May to October, 2002 with the same period in 2001. Company president Gerald Chandler said the consumer-directed health care concept, ?is so new there are few firms with year to year results? and that measurement is difficult in those companies with multiple options. But this was a total replacement client, so comparison is easy. The results exceeded the expectations of the Mercer Human Resources Consulting Group, which issued an opinion last year that expected savings in the 10 to 25 percent range. Specifically, there were reductions of 58% in emergency room cost-per-visit, 25% in diagnostic X-ray and lab costs per encounter, and a shift of 11.3% from name brand to generic drugs. At the same time, there was an increase of 9.6% in physician office visits and 31.2% in the total number of prescriptions written.

Synertech reports it is servicing over 100,000 members of consumer-directed health plans with its claims processing, enrollment, database management, coordination of benefits and other tools. It anticipates substantial growth in the business in the coming year, with total consumer-driven enrollment expected to reach 400,000 to 500,000 in 2003. Company president Steve Rock says, ?We have helped the leaders in the move to consumer-directed programs make their concepts a reality.? The company was founded in 1986 and provides outsourcing, application services and system maintenance in the commercial, Medicaid and Medicare markets.

Asperity Decision Solutions has changed its name from PlanSmartChoice, under which is has worked since 1995. It provides Web-based tools to large employers, including the FEHBP program. The tools include help to employees in finding the ?best-fit? health plan, a benefits comparison module, and a calculation module to help employees estimate their out-of-pocket costs under various plans and benefit designs.